HUTCHINSON — In a state where rural hospitals are financially flat-lining, the Hutchinson Regional Medical Center has a healthy bottom line.
The Chartis Group's 2017 Rural Relevance study of rural hospitals rates the medical center at No. 2 in Kansas, with a 15.6 percent operating margin — patient revenues minus expenses. That's one of the few bright spots for the state The Chartis Group identified with 31 rural hospitals in danger of closing. In McPherson County, Lindsborg Community Hospital is ranked at No. 4 at 8.1 percent. Kiowa County has the hospital that's ranked with the most financial liabilities in the state, among those with negative balances. But success doesn't come without sacrifice, said Hutchinson Regional chief executive officer Ken Johnson. To improve the health of its balance sheet, the hospital had to eliminate 50 positions and not fill another 50 spots back in 2012, Johnson said. Both of those were moves toward improving the sustainability of the hospital. Other moves included outsourcing medical insurance coding and closing the Dillon Living Center in 2016. The center, which was an assisted-living and skilled nursing home, lost over $1 million a year. The closure affected about 70 full time equivalent staff and roughly 70 residents. “Some of the things we have done over the years have been to cut costs, but not to the detriment of the community,” Johnson said, adding a study showed enough assisted-living homes in the area to house the displaced residents. While the moves put the hospital ledgers in the black, the CEO recognized the adverse impact on employee morale and the hospital’s community image.
Since taking over in 2015, Johnson said he has pushed to promote the hospital and its employees — often with employee profiles via Facebook. The Facebook profiles feature employees who explain their job and what they like about it. "I love working at Hutch Regional," an employee said in a recent video before explaining her job in outpatient infusion. "I actually joke with my co-workers that they are gonna have to bury me under the building, I am going to be here so long." Employee and patient satisfaction surveys, increased wages to retain and attract staff, more employee-oriented events, even a "spirit committee" to recognize employees, all point to the administration’s effort to change community image and employee morale. The public relations aspect, Johnson said, is paramount to showing the community what the hospital offers. That relationship, he stressed, is important to sustaining the largest employer in the city. The hospital has more than 1,000 employees. Administrators even put aside competition, at least somewhat, to launch a recent marketing campaign with the Hutchinson Clinic. “We are the workshop,” Johnson said. “They are the hands and the brains.” Chief Financial Officer Cassie Dolen said with revenues over $10.4 million, surgery was the top dollar producer in the 2016 fiscal year. Other services cost the hospital money, but administrators feel those services mean more to the community than the money lost. In the same fiscal year, Dolen said the skilled nursing unit lost $2.1 million mainly because Medicare does not cover all the costs for patient care between 30 and 120 days. Psychiatric and inpatient rehab lost money that year as well. The study that lists the 199-bed hospital as second in the state — behind Larned’s Pawnee Valley Community Hospital with a 16.1-percent profit margin — uses data from the same year. Dolen said she expects the operating margin to be up for the fiscal year ending June 30. But as a trend, the profit margin, and overall profit, has been decreasing since before the 2012 cuts to staff. Other hospitals, meanwhile, are struggling to break even.
Minus 58 percent
Kiowa County Memorial Hospital grapples to continue its operation. The hospital’s minus-58-percent operating margin was the worst for any rural hospital in the state. Morton County Hospital was removed because of what The Chartis Group called a typo. The group said Morton County accidentally entered a negative revenue into the cost report submitted to the Centers for Medicare and Medicaid Services. The Great Plains Health Alliance leases the county-owned, tax-supported Kiowa County hospital. Vice President for Regional Operations Curt Colson said with the $900,000 to $1 million in annual tax support, the hospital is “essentially breaking even.” Colson attributed the negative operating margin to reduced state and federal reimbursements, an exodus of people after the Greensburg tornado and an overall trend of people moving from rural areas. “10, 20 years from now as rural populations move away … makes it more of a challenge for you to have a hospital setting,” Colson said. The hospital was destroyed during the 2007 Greensburg tornado. But it was rebuilt and its mission refined. The critical-access hospital, defined as 25 beds or less, went from the maximum to 15 beds. It also expanded rehab services. “You need more of an outpatient setting,” Colson said. That setting, along with 24/7 emergency care access, falls in line with what the Kansas Hospital Association advocates for critical access hospitals. Cindy Samuelson, KHA vice president of public relations and political fundraising, said the model will better sustain critical-access hospitals into the future. Critical-access hospitals can receive additional federal reimbursements. Kansas has the most in the nation with 84. “Expectations are high,” Samuelson said. “Wherever people live, they want the highest quality care.” The Ashland Health Center’s minus-41.9-percent operating margin is second behind Kiowa County.Michael Topchik, with The Chartis Group and author of the study, said a negative operating margin does not mean a hospital is about to close but is merely one performance indicator. The operating margin does not include revenue from tax dollars, fundraising or investments. Hutchinson receives additional revenue from investments.
Medicaid cuts hurt
The Chartis Group listed over 600 rural hospitals as “at risk” or “vulnerable” for closure. The group would not disclose the names of those hospitals, including the 31 in Kansas, because identifying the hospitals could put them in even more danger for failure, Topchik said.The problem for rural hospitals starts with the patients they serve: mainly, Medicare and Medicaid patients or people without insurance.About two-thirds of rural patients use Medicaid or Medicare and about one-third have private insurance, Topchik said. The opposite is true for urban hospitals.The study shows states that expanded Medicaid operated better with a median operating margin of 2.4 percent while those that did not expand fell to 0.6 percent.Brock Slabach, National Rural Health Association senior vice president for member services, said federal policies hurt rural hospitals as well. A 2-percent cut to Medicare reimbursement affected rural hospitals worse since it accounts for more of its business. Another piece of federal legislation reduced the amount of Medicare reimbursement on bad debt for patients unable to pay. Again, that hit rural hospitals harder, Slabach said.“It’s never been a grand and glorious day in rural America in terms of hospitals,” Slabach said, but the “perfect storm is occurring right now.” Since 2010, there have been closures of 80 rural hospitals nationwide. Two closures were in Kansas — Great Bend and Independence.
Future for Kansas
Samuelson said the dwindling profits make it harder for hospitals to invest in new technology and offer attractable wages for new staff or to retain quality help.Samuelson said she anticipated the current direction would amount to more closures.Kansas’ minus 6.3 percent was the worst median operating profit margin in the U.S.; Hawaii was excluded since its rural hospitals are publicly funded.The KHA website shows the state lost out on over $2 billion in federal money since not expanding Medicaid. Although, Nebraska did not expand and boasts a 3.7 median operating margin.Slabach, with the NRHA, said Kansas administrators tell him Nebraska worked out higher reimbursements in its contract with Blue Cross Blue Shield compared to Kansas.Kansas and its 108 rural hospitals — second to Texas’ 163 — have seen rural hospital closures, buyouts and collaborations — all in the name of viability.